Covered call ETFs have become a popular choice among retirees and other income-seeking investors.
They work something like this. The ETF owns a portfolio of income-producing stocks. It then generates extra income by selling call options against the portfolio. What this does is maximizes income today while putting a limit on capital gains.
In other words, it’s the perfect strategy for retirees. They’re concerned with income, not potential gains.
The Tech Giants Covered Call ETF (TSX:TXF) is a little different than other covered call ETFs. Most competing products focus on traditional dividend stocks, like utilities or banks. This one owns some of the tech world’s largest stocks, hedged to Canadian Dollars.
Largest holdings include Micron Technology, Hewlett-Packard, Yahoo, and Apple, each with a weighting of approximately 4.2% of assets. In total, the fund owns 26 different securities and a the responsibility associated with a number of different options contracts.
There are 10.67 million shares outstanding with a recent price of $13.99 per share. This gives the fund a current value of just over $155 million. Approximately 27,000 shares trade hands on an average day.
The main appeal of this ETF is the income it provides. It pays investors on a quarterly basis. The last four payouts have been between 17 and 19 cents per share, giving the ETF a trailing yield of 5.2%. That is a very attractive payout in today’s low interest rate world.
Like many other specialty ETFs, the Tech Giants fund has a somewhat elevated management fee. It charges investors 0.65% per year.
